Singapore Property Stocks to Extend 2012 Rally: Southeast Asia

Dec. 31 (Bloomberg) -- Singapore property stocks, the best
performers on the benchmark Straits Times Index this year, are
set to extend their gains in 2013 on higher demand for homes,
offices and hotels, according to UOB-Kay Hian Pte.

Six out of top 10 gainers on the 30-member gauge are real
estate-related stocks, led by CapitaLand Ltd., Southeast Asia’s
biggest developer, and its retail property unit CapitaMalls Asia
Ltd. The benchmark’s property index, which tracks 40 developers,
gained 48 percent this year, its best performance since 2009.

“There’s some more room for outperformance,” said Vijay
Natarajan, a Singapore-based analyst at UOB-Kay Hian Pte. Gains
will be driven by “the disconnect over the last two years
between the physical market and the shares. As property prices
remained firm and there was genuine demand from the low interest
rate environment, investors started buying property stocks
again,” he said.

Demand for homes and offices in the island state of 5.3
million people boosted home prices to a record in the third
quarter. Singapore’s real estate investment trusts that invest
in offices and retail spaces posted the best returns globally
this year, driven by acquisitions and higher rents.

Record Prices

Singapore’s property stocks, including REITs, have a market
capitalization of $126 billion and make up 22 percent of the
benchmark Straits Times index, according to a Dec. 13 report by
Bank of America Corp.’s Merrill Lynch unit. The city’s private
residential price index rose 0.6 percent in the three months
ended Sept. 30, while new home sales are expected to reach a
record 22,000 this year, according to Jones Lang LaSalle Inc.

Gains in share prices this year have also been driven by
acquisitions and privatization bids. Overseas Union Enterprise
Ltd. made a $10.7 billion bid for Singapore property developer
and drinks maker Fraser & Neave Ltd., while SC Global
Developments Ltd.’s Chief Executive Officer Simon Cheong offered
to take the luxury home developer company private.

Fraser, whose property business is its biggest sales
contributor, jumped 56 percent this year, and SC Global shares
surged 84 percent, making it the third-best performer on the
Singapore property index.

“We have also got the corporate themes led by the F&N saga
and more recently by the SC Global privatization, so that’s
added another layer of buoyancy to the sector,” said Chong
Yoon-Chou, Singapore-based investment director at Aberdeen Asset
Management Asia Ltd., with $80 billion in Asian assets including
shares of City Developments Ltd. and Wheelock Properties Ltd.

Top Performers

Singapore’s record home prices prompted Finance Minister
Tharman Shanmugaratnam to say in October that the real estate
market may get “bubbly.” The government won’t allow home
prices to outstrip gains in incomes, he said.

Home sales in the city may fall as much as 27 percent in
2013 after climbing to a record this year as six rounds of
housing curbs by the government crimps demand, according to
Jones Lang LaSalle. Office rents in the business district
declined in the fourth quarter and vacancy rates will climb next
year in some prime areas, according to Cushman & Wakefield Inc.

The country was named the eighth most-expensive Asian
location for international assignees, according to ECA
International in June, down from sixth a year earlier as costs
in Chinese cities including Shanghai and Beijing increased.

‘Phenomenal Year’

Developers will continue to benefit next year as demand for
real estate increases and the rising popularity of the island
state as a destination for expatriates, said UOB-Kay Hian’s
Natarajan said. Investment plans by developers in markets
including China will also help boost returns, he said, adding
that he recommends stocks including Ho Bee Investment Ltd., Wing
Tai Holdings Ltd. and CapitaLand.

Wing Tai, the top performer this year on the Singapore
property index, is trading at 66 percent of its book value,
according to data compiled by Bloomberg. Ho Bee trades at 81
percent to its book value, the data showed.

“This year has been a phenomenal year for property
stocks,” Natarajan said. “We like some midcaps which are
trading at a steep discount to book value, so some catch up will
take place.”